Fundamental Forecast for Gold:Neutral
- Gold and Silver Face Breakouts On Surprise NFP Print
- Gold Holding on to 1280 for Dear Life
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Gold prices are firmer on the week with the precious metal rallying 0.5% to trade at $1302 ahead of the New York close on Friday. The move snaps a two week losing streak that saw prices plummet more than 8.2% off the highs and although the rebound may yet have further upside, the magnitude to the rally is likely to remain limited.
The March non-farm payrolls report took center stage on Friday with the data coming in slightly below expectation at 192K with the headline unemployment rate holding steady at 6.7%. Expectations for a strong employment read had been building all week with some estimates calling for a print as high as 270K after a strong upward revision to the February ADP report. The result saw the US dollar give back a portion of the week’s rally with gold breaking out of a tight weekly range on the release.
Despite the miss on NFPs and the headline unemployment rate (which was expected to fall to 6.6%) a sizeable bounce in the labor force saw the participation rate climb to 63.2% from 63.0%, its highest level since July of last year. Similarly upward revisions to the February print also painted an improving picture for the labor markets, albeit slightly weaker than consensus estimates. Still risk assets took no solace with US equity indices selling off sharply into the close of the week.
Looking ahead, traders will be closely eyeing the release of the FOMC minutes form the March policy meeting on Wednesday. With the latest quarterly projections showing a growing number of Fed officials showing a greater willingness to raise interest rates in 2015, investors will be looking for further details on the timing and methods by which the central bank may look to begin the normalizing policy. Gold is unlikely to see significant upside on the back of this week’s reversal as the fundamentals remain broadly unsupportive for the bulls. The two largest risks to our outlook remains if A- the recent sell-off in equities materializes into a larger correction or B- unforeseen geopolitical threats re-emerge.
From a technical standpoint, the broader focus on gold remains weighted to the downside after breaking below key technical barriers last month. Interim resistance is eyed at $1310 with only a breach above the March opening range low at $1327 invalidating our medium-term bias. Key support rests at $1268/70 with a break below the 61.8% retracement of the late December advance at 1260 putting longer-term targets at 1224/26 in view.